Shareholder attorneys blame the logjam on board stonewalling, while companies say the ballooning cost is affecting settlement leverage. “Shareholders aren’t in the engine room every day, so there was wisdom in
En banc for 14a-8?
Well, the Fifth Circuit reached its decision in National Center for Public Policy Research et al. v. SEC, which I previously blogged about here and here. As I predicted, the panel chose to leave the SEC’s 14a-8 review process in place, but also as I suspected, Judge Jones – the only GOP appointee on the panel – dissented.
So I presume we’ll see a petition for rehearing en banc, and it wouldn’t surprise me at all if the full court took up the case, meaning, this may not the final word.
Recall, the claim was that the SEC engages in viewpoint discrimination when it issues no-action letters regarding companies’ attempts to exclude shareholder proposals from their proxy statements. NCPPR claimed the SEC favors liberal proposals and disfavors conservative ones. Separately, the National Association of Manufacturers intervened to argue that the entire 14a-8 system is unauthorized by the Exchange Act and is unconstitutional.
The SEC’s main argument was that no-action letters are not final orders subject to challenge. The Democratic appointees on the panel agreed, but assuming Judge Jones’s dissent is a template for how the full Fifth Circuit would view the matter, it threatens to scramble the 14a-8
As I understand it
Elon Musk is using his new quasi-official role with the federal government to threaten to preempt Delaware law with federal corporate governance standards, if the Delaware Supreme Court does not restore his Tesla pay package.
And another thing, on this week’s Shareholder Primacy podcast, Mike Levin talks with Matt Moscardi of Free Float Analytics about what shareholders should and do look for in director candidates, and how to use advanced data and modeling to identify good and bad directors. Available on Spotify, Apple, and Youtube.
Early Thoughts on Election Impact For Financial Regulation
- Administrative agencies may focus on repealing existing rules over crafting new ones to address problems. We saw this with the last Trump Administration and I’d expect to see more of the same.
- The Trump Administration will likely move to exert more political control over civil servants. At the end of the last Trump Administration, President Trump issued an Executive Order aiming to exclude many more federal employees as outside the ordinary civil service rules. President Biden revoked it on taking office. If reinstated, Schedule F would cover “[p]ositions of a confidential, policy-determining, policy-making, or policy-advocating character not normally subject to change as a result of a Presidential transition[.]” Essentially, the Trump Administration may seek to take political control over any federal employees involved in policy work. This would cover a huge swath of federal employees.
- The independence of the SEC will be tested. There are two ways I can see this happening. First, Chair Gensler could decline to resign and simply serve out his term. President-elect Trump has promised to fire him. But
Bill Carney’s Legacy
Many readers know Bill Carney, Professor Emeritus at Emory Law. Bill’s scholarly and instructional work in business finance has enlightened so many of us. That, alone, is a great legacy of his many years of research, writing, and teaching.
But now we have another reason to celebrate Bill and the mark he is leaving on our world. Last week, Emory announce a major gift from Bill, creating the William and Jane Carney Center for Business and Transactional Law at Emory Law. Many know about Emory Law’s historical leadership in business law through its Center for Transactional Law and Practice (which is encompassed in the Carney Center). Bill has been a strong component and proponent of that leadership. This gift will undoubtedly ensure a continued academic and instructional focus on business law at Emory Law for the foreseeable future.
I am thrilled for Emory Law and my friends there. And we all can be grateful to Bill for so much–including this. Business law education needs more of this kind of support.
ESG Within Fund Families
One issue that I keep coming back to concerns the conflicts inherent in asset management. Namely, mutual fund companies control lots of funds; each fund is its own entity, and presumably has its own interests; and yet historically, they’ve tended to be managed as a group, with – for example – all funds voting relatively in tandem, even if different funds might have different sets of interests (not always; sometimes there are legal reasons to separate them).
Anyway, it’s a subject I’ve written about in the past, and I’m always fascinated when a new empirical paper pops up illustrating the coordinated management of funds. Recently there have been a couple of interesting ones on the subject of ESG. Previously, I blogged about this paper by Roni Michaely, Guillem Ordonez-Calafi, and Silvina Rubio, which finds that mutual fund families let their ESG funds vote separately in support of ESG issues only when those votes are unlikely to be the pivotal ones, because the proposal is widely supported or widely opposed. When it’s a close vote, their ESG funds are reined in to the house view.
And now there’s ESG Favoritism in Mutual Fund Families, by Anna Zsofia Csiky
Benefit Corporations – Last-Minute Invitation
I know this is late notice, but I have a small role in an online symposium on benefit corporations being held today at 3:30 pm Eastern (12:30 pm Pacific). The symposium features essays on Professor Michael Dorff’s recent book on benefit corporations, Becoming a Benefit Corporation. The essays will be published in a forthcoming issue of the Southwestern University Law Review. I am writing a foreword for the issue. If you have time and want to register to attend, the flyer is included above. You also can just register here.
A New Business Law Dean – at UGA Law
Although many may have heard by now, friend-of the-BLPB Usha Rodrigues has been named the next dean at the University of Georgia School of Law. We are delighted to see this. Usha joins a long and illustrious line of law deans with business law backgrounds. We wish her well in this new role for an institution she has served for many years.
TripAdvisor’s Supreme Court Oral Argument
24. Professors Paul Gompers, Joy Ishii, and Andrew Metrick also examined Professor Daines’ results as part of their study of 1,500 large firms to assess how firm governance affects stock returns. Consistent with the unique nature and heterogeneity of each company, they found that the premium observed in Professor Daines’ study was attributed to various governance characteristics, such as a classified board, limited ability to call special shareholders’ meetings, and state law and charter takeover protections. After controlling for these factors, they discovered that the Delaware premium was no longer statistically significant. In other words, Professors Gompers, Ishii, and
An anti-activist bylaw is upheld at Eaton Vance’s closed end fund
I previously posted about an anti-activist bylaw at a closed end fund, meant to head off Saba Capital. The bylaw provided that an activist who obtained more than 10% of the fund’s voting power would not be able to vote the excess, unless the remaining fund shareholders voted to permit it. The Second Circuit found that bylaw ran afoul of the Investment Company Act.
Eaton Vance came up with a new tactic. Funds, unlike operating companies, have a large retail shareholder base. And retail shareholders often don’t cast ballots at all.
For ordinary director elections, retail lack of participation isn’t a huge problem. The directors are elected by a plurality standard, so you don’t need a majority of shares to vote in favor. And that means when an activist like Saba comes along, Saba can defeat the sitting directors under a plurality standard.
So! Eaton Vance funds passed a bylaw that provided for majority – not plurality – voting, but only if a director election is contested. And further, the bylaw provided that if no candidate receives a majority, then the sitting directors get to maintain their seats as holdover directors.
Which functionally means that, in a contested election, the